Scott Peterson, the vice president of U.S. tax policy and government relations for tax automation software company Avalara, based in Seattle, discusses a recent memo from Amazon letting Amazon sellers know that if they made sales in Rhode Island, the company is required to disclose information on those sellers.
PBN: Does this third-party seller information necessarily mean that the state is looking to collect third-party taxes?
PETERSON: Yes. The state is trying to either get sellers to collect sales tax or gather the information necessary so the state can collect use tax. Rhode Island law requires sellers who do not collect the state’s sales tax to notify their Rhode Island customers that the seller doesn’t collect sales tax and the customer might owe the state use tax.
In addition, state law requires marketplaces [that] do not collect to give the state a list of the sellers on their marketplace. States are legally entitled to obtain data that confirms companies doing business in the state are collecting the proper tax. Rightly or wrongly, in just about every state, and perhaps in every state, the ability to engage in business is conditioned upon compliance with the law. One of those laws is the ability for the government to evaluate [audit] compliance with the law.
PBN: Would it be accurate to say that long-time sellers on Amazon who are based in Rhode Island are concerned about this development?
PETERSON: No, as a seller based in Rhode Island should already be collecting Rhode Island’s sales tax and should not be impacted. However, a seller based in Rhode Island who is not already collecting the state’s tax should be very concerned.
PBN: What other reasons might there be that this information is being requested now?
PETERSON: Consumers who are not charged sales tax legally owe the state a use tax. The state will use information it gets from sellers who do not collect to notify consumers they owe use tax. Every state has a program that looks for merchants doing business within its borders.
First, Rhode Island will compare the Amazon list to its existing list of licensed businesses. Second, every business that isn’t already licensed will be examined to see whether it has nexus in the state. Those determined to potentially have nexus will receive a letter from the state demanding registration and sales tax collection.
PBN: The idea of cookies being seen as a “physical presence” in a state, does that concept have general consensus?
PETERSON: There isn’t a general consensus that cookies and apps are physical presence. However, most, if not all, states treat software as physical property, and it is common that physical property creates an obligation on sellers to collect sales taxes.
PBN: What should Rhode Island Amazon sellers do now?
PETERSON: Rhode Island Amazon sellers that are not already registered to conduct business and collect sales tax should contact their attorney or [certified public accountant] for legal advice. In its notice, Amazon encourages sellers to consult with a tax adviser. It also suggests sellers look into tax-calculation services. These greatly facilitate sales and use tax compliance, particularly for businesses making sales in multiple states.
Susan Shalhoub is a PBN contributing writer.
